Bangladesh agrees to floating exchange rate to secure stalled IMF loans

Bangladesh on Wednesday agreed to the International Monitory Fund's (IMF) condition of market-determined exchange rate to secure stalled loans. Bangladesh Bank Governor Ahsan H Mansur announced a managed floating exchange rate with immediate effect to meet the IMF conditions, helping secure the loan confirmation.

''Bangladesh will receive a total USD 3.5 billion by June from different multi-donor agencies, including the WB (World Bank), ADB (Asian Development Bank) and IMF,'' he said in a virtual press conference from Dubai.

The central bank governor expected the ''managed exchange rate'' to be around the existing rate due to available dollar liquidity.

The central bank officials said IMF agreed to release its stalled fourth and fifth tranches of the loan by June as the disagreement over exchange rate flexibility was resolved after months of negotiations.

They said the announcement meant adoption of a ''market-based'' exchange rate regime, abandoning the partially flexible system that had been in place until now.

Under the new system, there will be a band through which the exchange rate will move. However, the Bangladesh Bank did not elaborate on the system but said a stabilisation fund of USD 500 million was developed to be used in stabilising the exchange rate.

The central bank chief said banks were already informed about market-based exchange rates but added that Bangladesh Bank will intervene in case of large foreign payments to keep the rate stable.

The announcement came a day after the Bangladesh Bank finally reached an agreement with the IMF over the implementation of greater exchange rate flexibility after a series of meetings.

The IMF agreed to release USD 1.3 billion of the USD 4.7 billion loan package in June, which was so far withheld due to disagreement over the implementation of greater exchange rate flexibility through a crawling peg.

According to media reports, the IMF remained insistent on implementing a truly flexible exchange rate -- one that goes beyond minor corridor adjustments and eliminates multiple exchange rate windows.

The central bank was reluctant to agree to the IMF's proposal citing risks of inflationary shocks and political pushback.

In 2023, the IMF had approved a USD 4.7-billion loan for Bangladesh and so far, the South Asian country has received three installments totaling USD 2.3 billion.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)